The Mexican peso and its weakness against the dollar
April 6th, 2011
Our weight from January to date has been punished to the extent that its value against the dollar has been a sharp decline in purchasing power (in so far this administration has devalued 30%), its contribution compared to American currency has exceeded $ 15.00. This is linked to problems such as:
The uncertainty that has prevailed in international markets, where volatility is constant and that may be required in a short time, the stability that investors want;
- Financial flows to our country have been reduced, investment has been more from the point of view of speculation that a direct investment;
- The price of oil, which has been a sharp drop so far this year (fortunately the government the price per barrel for the 2009 budget was shielded), which consequently brought the decline in oil revenues in dollars, but the shield will not come until 2010, therefore, demand for oil worldwide could fall will lower revenue and foreign exchange reserves in Mexico will go down as well, thus affecting public finances;
- Interest rates have been lower, and the differential current interest rates in the U.S., have not helped to strengthen the purchasing power of our weight and therefore, notwithstanding the high cost of the greenback, demand has been increasing.
- If we analyze each of the reasons that have been weakening the peso, is worrisome, and has forced the Bank of Mexico, together with the Ministry of Finance and Public Credit, to design a strategy, which has been to auction off billions of dollars, with what was expected to strengthen the peso, but unfortunately, this has not yielded the expected results, affecting a large number of Mexican companies, without forgetting the harm to people, which unfortunately did not get to count appropriate advice, they are driven by the illusion that they think that their savings may be largely protected if they invest in dollars, and have not measured the consequences of that increased demand for the greenback, the higher the cost.
- The facts set out in the currency market during the month of March, which is about to end, has shown that the policy of daily auction failed to generate stable peso against the dollar, instead created a greater demand, and we ask: What makes the dollar despite its high cost, has the demand so high?, on the contrary we observed an accelerated depreciation of the peso, which puts at risk all the economic policy of Mexico, causing negative consequences such as: a larger deficit on current account, which has exceeded 15 000 million.
In spite of measures taken, which aim to lower the devaluation, the volatility of the peso remains strong, some people predicted (including IXE Bank analysts and other domestic and foreign financial institutions) that the weight will come down hard to 13.50 per dollar, but its devaluation persist can get closer to the 15 by one.
